Q4 2021 North West Company Inc Earnings Call
Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press Star one system, Tony will be heard when you request has been accepted to cancel your question Press Star two.
Specialty coffee holes come off us soup to both boards in guests don't have to use it while I take it on my desk I thought you did a coffee house and done that you did you see Stan Goff Yamaha because that's what the Monday Dx at City point, you lead with like is still a few years. So it was due.
Okay.
Okay.
Okay.
Hum.
Hum.
Yeah.
Hum.
Okay.
[music].
Okay.
Okay.
Okay.
Yes.
Uh huh.
Hum.
This conference is being recorded so it goes to the homes that don't have as you see.
All participants please standby your meeting gets read you begin.
Please be advised that this conference call is being recorded and welcome to the North West Company, Inc. First quarter results Conference call I would now like the meeting over to Mr. Doug Macdonald, President and Chief Executive Officer. Mr. Mcdonald. Please go ahead.
Alright, well, thank you very much and good afternoon, and welcome everybody to the North West Company fourth quarter Conference call.
I'm joined here today by John King, Our financial Chief Financial Officer, and Amanda Sutton, our VP of legal and corporate Secretary.
So when I start the meeting today by asking them to read our disclosure statement.
Thank you Dan.
Before we begin I remind you that certain information presented today may constitute forward looking statements.
Such statements reflect north West's current expectations estimates projections and assumptions. These forward looking statements are not guarantees of future.
And are subject to certain risks, which could cause actual performance and financial results.
Be sure to vary materially from those contemplated in the forward looking statements.
For additional information on these risks.
We see north was annual information form and it's M D under the heading risk factors.
Yeah.
Okay.
Alright. Thanks.
That's really an overview of our fourth quarter.
And if you could just calls.
By comparison on a full year basis, just to provide context to.
These results.
Huh.
For the quarter increased two 4% to $579 million.
Led by same store sales in international.
Foreign exchange impacted consolidated sales actually increased by two 9%.
Same store sales were up 21% on top of a 16, 8% increase in the fourth quarter last year.
Diluted earnings per share increased 12, 7% and according to a 71.
This more than doubled.
From Q4 of 2019.
Adjusted net earnings which includes the impact of <unk>.
I think that's related games and after tax share based compensation costs increased $1 9 million or six 1% compared to last year.
During these last couple of years, our teams have really been part of our values, particularly around it.
Great.
It's especially important because of circumstances around it.
I mean, you're resilient adaptable and enterprising.
During the quarter consumer.
Consumer incomes support funds continues to dwindle, but thank you.
Clearly in northern Canada.
Restrictions are less severe compared to what they were.
Sure.
But the customers given the focus we have been able to reach more market share in both our Canadian and international markets. Despite of this shift in tailwind from the COVID-19.
We are focused on maintaining our in stock position.
On the supply chain challenges.
As an essential service provider RPM as you understand that we need to prioritize until rates guarantees and security of our communities.
Thank you.
No.
Yourself.
We have felt some.
I'm gonna shortages and delays as well as weather issues. This winter slowed our progress.
However, our team continued to adjust.
Inventory earlier to account for extended lead times.
Definitely it was successful for us coming into the holiday season.
This includes increasing our inventory levels compared to last year as we take a more aggressive see lift in winter roads stores in Canada, and adding to your supply chain at the same.
And rising costs industry wide inflation.
In fact, we secured additional warehouse space furthering our ability to move heavily.
<unk> and optimize ICU freight on the Winter Road networks.
Alright, so having set the context, let's talk a little bit now about Canadian sale.
Q4 sales increased one 3% to $333 million billing on an exceptional sales gains last year.
Same store sales were down 3% compared to 21, 2% increase last year.
On a two year basis same store sales were up 17, 7% compared to the fourth quarter of 2019.
We were able to hold our ground on food sales in Canada, despite absorbing some support.
As it remains flat.
As it remains flat to last year on a same store basis compared to 16, 7% increase in 2020.
However, these factors had a larger impact on general merchandise sales decreased 12% on a same store basis coming off of a 41, 6% increase last year.
Overall food in General My General merchandise same store sales have remained strong over a two year period with increases of 16, 7% and 25, 1% respectively compared to 2019.
On the other hand, our international operations sales continue to have a healthy growth trajectory.
In Q4 increased five 7% to $194 million and were up 16, 4% compared to 2019.
Same store sales remained strong increasing 5% on top of a 10, 7% sales gain last year.
Across the different international jurisdictions, a strong in stock position also allowed us to capture sale.
As I said before this is not been smooth sailing.
Lightning challenges continue, but we have been able to be from better in stocks on our competition, which has allowed us to grow our market share.
Higher snap payments Native Corporation payments helped drive sales in Alaska.
In our tourism dependent markets, we're seeing a positive trend of rubin's travel, although still well below pre pandemic levels.
Sales in international were up six 1% on a same store basis compared to a seven 5% sales gain last year.
On general merchandise, we were able to relatively hold our ground during the holiday season, and international with sales decreasing 5% overall.
However, note that last year, we had a tremendous performance with a 35, 2% increase on a same store sales basis.
Similar to last quarter supply chain issues and inflationary trends put some pressure on our gross profit.
Oh I see.
It was actually a decrease of one 7% compared to last year due to a 134 basis point reduction as a rate to sales.
The decrease in rate was primarily due to changes in product sales plan, particularly related to general merchandise sales and higher shrink and markdowns compared to last year.
Alright, some context to these results on a two year basis.
Because of the high sell through east we experienced in last year in 2020, our turns markdowns and shrink improve substantially in 2019, our gross profit rate in Q4, Q4 of 2020 with 266 basis points above 2019.
Now if we compare our 2021 GP rate to 2019, our fourth quarter rate of 31, 9% is still 132 basis points better than 2019.
So when we're considering altogether.
This rate is within an acceptable range to deploy more customer driven approach.
That's what we're doing on certain key markets category, then idle here. Our focus has remained on keeping both our customers' trust and the momentum on market share capture by closely monitoring competitive pricing levels with a balanced approach.
We are taking steps to mitigate these inflationary cost increases as much as possible to meet our value offering to our customers, while not losing sight of driving value for our shareholders.
In terms of expenses, we have been very focused on finding efficiencies were available during the quarter. There was $3 $6 million decrease compared to last year, mainly due to insurance related gains that offset higher expenses of new store and share based compensation costs.
These are inclusive of $4 $1 million in special payments to non bonus eligible frontline associates in recognition of their contributions to serve our customers.
Excluding the insurance gain in share based compensation costs expenses decreased 21% compared to last year.
Alright, now, let's shift gears and transition to talk about the performance of the airline.
The passenger charter related business continues to recover compared to last year. After the community travel restrictions experienced in 2020.
However, this trend was somewhat impacted later in the quarter by new Covid travel related restrictions related to Amazon.
Overall, the improvement in our passenger business, partially mitigated the impact of the remote air carrier support program and Canada, Macy's emergency wage subsidy payments that we did receive last year.
On the other hand, the cargo business continues to perform well, providing an edge against the competition to navigate the supply chain constraints as we use it to satisfy their own cargo to the source.
The top of that third party cargo also performed better than last year as we are able to get some traction with some of your clients.
Bringing all of the above together the company's net earnings increased $2 8 million to $35 6 million.
Mentioned earlier adjusted net earnings increased $1 9 million or six 1% compared to last year lower interest expense, resulting from lower debt levels as well as a lower effective tax rate driven by higher blend of international operations supported these results.
Now in terms of our short term outlook. There are still uncertainties related to COVID-19, and macroeconomic implications as we continue to monitor the development of new variance.
Situation in China, and the war in Ukraine.
Forecasting in this current macro climate is difficult, but companywide overall, we anticipate our same store sales.
Same store in 2022 sales to be lower than last year, but higher <unk> compared to <unk> levels.
On the near term supply chain constraints will continue to challenge our operations, we expect at the current stock levels and in store focus of our teams will allow us to navigate this moving forward.
We are encouraged with the positive trends of tourism and expect this to continue throughout next year as tourism dependent markets recover from record two year lows on this front.
Income supporting our markets, particularly in northern Canadian and U S markets will be lower compared to last year.
Throughout our stores and banners operational excellence will continue to be a priority improving execution execution assortment and product flow.
We will also focus our efforts on continuing to capture market share by investing in our stores for the long term through accelerating store renovations to report Poland. During the pandemic. This is going to enhance our customers' experience.
In Alaska, we opened our third store in Gamble at the end of January heading into 2020 to our store expansion plans will continue and we're hoping to announce some new store openings in the coming months.
In Canada, we are advancing price or price optimization focused on controlling costs and mitigating inflationary impacts we are enhancing our procedures and systems to be able to calibrate opportunities, where we can access price elasticity on an ongoing basis to tackle opportunities that will help us better serve our customers and gain market share.
With gross profit dollars are top of mind.
As mentioned on previous calls this is an ongoing process of being a better retailer doing discrete tests and pilots afford deploying better wide.
Okay, let me finalize by saying that.
Extremely pleased with the financial results in the quarter for fiscal 2021, I would like to again, thank our people and teams we are moving with purpose towards the future and their everyday actions are the foundation upon which the trust of our customers and communities is built I am confident that by aligning our business model and the value proposition we have for our people.
Customers communities and shareholders, we will be able to keep the great momentum.
Excuse me.
We will be able to keep the great momentum that we have in position or not.
West company for success in the years to come.
With that I will now ask the operator to open up the call for any questions.
Thank you we will now take questions from city from mines. If you have a question. Please press star one on your devices keypad.
Yeah.
Thank you. The first question is from Michael <unk> TD Securities. Please go ahead.
Hi, good afternoon.
Good afternoon Michael.
A couple of other questions just to start off your 2022 guidance, where you say you expect your.
EBITDA did decline year over year, it's not clear to me, whether you're talking about adjusted EBITDA are just reported EBITDA because you do call out.
The 2000.
<unk> gained as a key reason for the drop.
Yes, it would be reported Michael I reported EBIT EBITDA.
And I don't think we said did you say year after year, we said next year.
Year over year, yes, so 2022 over 2021, yeah, Yeah, that's right yeah.
And do you care to comment at all on an adjusted EBITDA.
People focus on more.
No we typically don't comment on adjusted EBITDA.
Okay.
Alright, you mentioned that you are.
We're a little static either on on your comments, but but theyre pretty thorough.
Did mentioned.
Gross margin of $31 nine did you say that that is better that's the better level going forward given your balanced approach that's correct.
Yes, Sir.
Alright.
Alright.
I guess when you when you look at the.
The in market spending increase that you got during COVID-19 .
Some of that was forced upon them.
Consumers during COVID-19 , but some how much of that do you think it turned more.
Permanent considering your better pricing your in stock positions.
That is.
Big question, obviously, we're a we're expecting to be more than less I mean, we've where we think we have some great momentum behind us Michael and we're going to continue to keep.
Keep our customers trust that we gain trust that we've gained over the last two years.
But it's really hard to put it wanted to put a number to it.
<unk>.
It's especially with all the volatility in the markets now with all the things that are that are happening. So it's really tough to quantify.
I guess as you.
In the travel restrictions come off at different times over the past.
Couple of years now.
I don't know if theyre starting to ease in the north now, but are you starting to see any kind of leakage in your market share.
We are starting to see Yep, sorry go ahead, Michael I didn't let you finish sorry, just mostly back to destination dropping I'm assuming yes.
Exactly.
February starting with this year, yes.
Right.
Alright, and then just finally before I get back in the queue.
There was a comment on acquisition opportunities in your outlook in the annual report and just kind of curious what type of businesses, you're looking for by geographies.
Our focus.
The same type of markets that we operate in today and they would be a predominantly retail.
If that's your that's the nature of your question.
Okay. So just standard like food retail general merchandize retail you got it okay.
Are you more interested in.
Filling in some holes within your.
Caribbean Kashi last night markets or more so in the north.
If you ask more interested are currently more than northern territories simply because that's where we see the opportunities present themselves. So that would be in Alaska and in Canada.
Perfect Alright, thank you.
Yeah.
Thank you. The next question is from Mark Petrie RBC. Please go ahead.
Hi, Good afternoon. This is <unk> filling in for Mark Thanks for that.
Question No problem I was going to say that doesn't sound like mark.
Yeah.
So given the various elements of your company could you talk about the impact of higher oil prices on your business. So you'll have higher freight costs and passing the airlines.
Today I'll have got economy.
Can you share with us how you're thinking about that through the course of 2022.
Okay. Yeah. That's good obviously, we do and as I indicated in my in my discussion just earlier, we do and have tried to purchase pre purchase a lot of our product to the extent that we could just given our our concentration on winter Road. There was just I guess coming to an end now.
So that's a lot of that product has been accounted for as far as the so it's going to be you know obviously the same impacts of it and the inflation in the in the oil that we see right throughout the entire market, but when I look at the the Alaska example, typically the higher price of oil has a pause.
What a correlation to the economy into the market in Alaska, so that could be an opportunity for us obviously.
We don't know what the P. F. D. For example is going to be but we think that it could be a positive gain for Alaska as far as their economy is a concern and everywhere else, we think it's going to be.
A bit of a drain on on the business. So it's.
There's a bit of a hedge we get we get a check mark in Alaska and we are obviously in some of the other markets. It's something that we're going to have to work through as we've had some hedge just by nature of our business of pre buying our product before the increases came through but then later on in the year, it's something that we're going to have to mitigate.
Okay, Great. That's helpful and then as a follow up can you comment on the price optimization.
How they've been progressing and also what has the customer response been so far given the previous question about more.
Hum in market shopping.
It's really it's too early to really raise our arms, but I can say that obviously as I indicated it's going to be something that we test we have had some wins, but we.
We are by no means at a place where we think it's a blanket a railroad that's gonna have to yet.
As of today, it won't have a significant benefit but it's a it's definitely our outlook and our expectation is that it will have a significant benefit as we continue to build that competency through the latter half of 2022.
Yeah.
Okay. That's helpful. Thanks, very much alright, thank you.
Thank you once again, please press star one on your devices keypad. If you have any question.
And the next question is from John Vincent.
<unk> capital markets. Please go ahead.
Hi, there good afternoon, congrats on the quarter I just had a quick question on.
Capital allocation.
$120 million of Capex for next year.
Should we expect to see that go entirely to store, new builds or where.
Where do you think where do you see that going.
Is well, there's a mix of different projects and there will be some of it is through the acquisitions that we talked about in the Alaska commercial company.
Some of it is some new store rebuilds and a lot of it is actually two renovating existing under I guess you'd call. It.
Plants are facilities that are in need of a investment.
So it's kind of a really good kind of hedge.
<unk> of all of those things.
Okay got it and then just on the police and more generally for the business I understand the sort of ongoing pricing optimization efforts.
Is there any other levers within the business that you see.
As a good way to deal with inflation, maybe on the cost structure I know you mentioned.
There was some wisdom sort of cost being down a little bit year over year, but just wondering if you have any thoughts on that going forward.
You know what obviously our cost optimization is something that we think about regulated we do have some initiatives that were well into to try and reduce some of the drainage costs on our business such as our shrink increased our AR turns.
And obviously you'd make or through some of the programs. We developed in our labor to make our labor much more efficient and effective so I would say amongst those triggers we're hoping that we can offset I wouldn't say entirely for sure, but but take a chunk out of it and just create that thrift throughout the entire chain as everyone.
He feels.
The inflation this isn't something that's just six was at the industry. Obviously people are feeling it individually.
And their own so it's it's a it's no surprise to anybody. So yes. We have we do have initiatives that we've coincidentally started and are well underway to be able to optimize some of our expense reduction.
Got it and then maybe just one more for me since you mentioned labor I was just wondering.
You've heard from some other retailers that you know, they're having trouble attracting.
Attracting we're attracting talent and retaining.
Libra within their stores, just wondering if you're seeing any of those impacts or was that would've been a non issue for you so far.
I wouldn't say it's.
Like this is always a big struggle that we have so it's something that we put a lot of time and attention to we have a pretty unique offering. So we tried to cater our oh our.
<unk> and the people that fit the experience that we have to offer so yes, we do definitely.
We are preparing for it we have felt it not too much more than we do typically but we have some pretty significant plans through our people strategy that we're trying to.
Combat just churn as it is we're trying to keep more people increase the value proposition for our employees getting more creative as to how we offer that and so it's a high focus for us but as of right now.
It's been no more then it then but not significantly more than it has been in previous years, keeping in mind that it always is.
A challenge for us.
Okay, well congrats on the quarter once again, thanks very much.
I appreciate it thanks.
Okay.
Thank you. The next question is from Michael Daniels T.
TD Securities. Please go ahead.
I just wanted to follow up on on some of the cost.
Comment that you made I think a number of them are tied to it.
Ed.
Offsetting some of the cost of goods sold inflation about your SG&A was flat year over year, excluding the stock based comp and the insurance gains and that's pretty impressive.
You said you decreased your incentive plan cost, but you added a higher store count so can.
Can you kind of discuss the underlying inflationary pressures, you're seeing in opex and how you're offsetting them in and then you know.
How could this outcome differ if at all in 2022.
Okay. So there's a couple of questions. There. So your first question is.
How we were able to offset costs. There was a lot of COVID-19 related costs, there was not as much obviously in 2020, but.
So, but we did a we did kind of rein that in a little bit in 2021, despite the payment that we the incremental payment that we gave our frontline staff. So that was but otherwise there wasn't nearly the expense obviously there was the 2020.
As far as how we're mitigating inflationary cost moving forward I think it's the same as everybody. We're trying to on one part we were being very selective on what we pass through obviously not.
Try to keep gross profit dollars strong, but obviously at some point to the extent of the rate.
As far as really offsetting some of the other inflationary pressures, it's trying to look at different mix.
We have some different programs.
We have different programs on the type of product that we're selling we're creating more solutions less expensive solutions, whether it be private label or other such items that we might be looking at to try and create some suite.
Some choices for our customers. We do have initiatives that are controlling labor our labor optimization has been a big one as they manage to the last two last questions. So that's that's.
Probably one of the bigger cost effective.
Measures that we're looking at this year I'd say in labor and then creating a trying to avoid some of the inflationary pressures by finding solutions for our for our for our customers of maybe in the private label kind of sector and lower cost alternatives.
Alternatives.
Okay and then.
NSA.
You talked about the large cargo door ADR.
And Oh in your annual report you also have Matt.
Mentioned it is that it's kind of a.
Eight years as a proof of concept.
What are you what are you looking at it in terms of metrics to determine if its successful and if it is successful.
What would that mean for either future fleet expansion or upgrades to what you have now swapping out.
Got that okay. There's two perspectives, there theres a premium because of its uniqueness.
The lack of supply for this type of of options. So for construction materials. Other larger sized cargo. This is an option for that so you'd get a better significantly better margin and there's also an efficiency play.
When it when dealing with north West freight in fact, it's kind of along that same line that I was speaking about earlier with the freight off are the.
Labor optimization, it's a significant labor savings and decide door and how it interacts with our supply chain and with off loading into our stores. So those are the efficiencies and the kpis are correlated to basically identifying the outcomes of those two.
The hypothesis, if you will so really cargo utilization.
Efficiencies and just market.
Our market value for having such of having such an asset.
And so if it continues to be successful would you be thinking of swapping some of your existing plant apr's into these large cargo door.
Units or would you be just adding more planes.
No well no it would be the the prior it would be a conversion of some of our ATR as into us to optimizing with a larger a.
Side door.
I mean, unless hey look if demand if demand.
<unk> to a point that that there was more.
A band that I forecast, then we wouldnt be adverse to.
Getting another plane to satisfy that demand, but I don't see that I don't see that happening.
That's not our current thinking yeah.
Thanks, very much good quarter.
Hey, Thank you.
Thank you we have no further questioners at this time I would now like I said meeting back to Mr. Mcdonald. Please go ahead.
No I think that's all I have operators. So thank you everybody.
For attending and.
If there's any further questions obviously everybody knows that.
Where we can be reached so please give us a shout.
The conference has now ended please disconnect your lines at this time, we thank you for your participation. Thank.
Thank you.